Effect of the Minimum Wage Increase on Retail and Small Business

In his recent State of the Union address, President Obama proposed a startling and swift raise of the national minimum wage. He presented his plans to implement a 24% increase of $1.75 per hour, bringing minimum wage from $7.25 to $9.00. The change would take full effect in 2015, which many feel is too much too soon for low-margin businesses to be able to adapt. "You take that kind of increase and you are going to see some reaction, some layoffs, some increases in inflation," Bob Gorland, an expert who specializes in supermarket and retail center feasibility studies and vice president in the Harrisburg office of Matthew P. Casey and Associates, said in response to the president’s proposal.

Small business owner Ron Taylor predicted his business would not be able to maintain its current staff if the change goes through. "It would probably result in less manpower hours," Taylor said, explaining that if the minimum wage goes up, the number of people he employs could go down. “It's one of the things that as small business owners we hate to do because we have relationships with these people, but from our standpoint it's a matter of survival.” Most of minimum wage employees are college students. He fears that letting them go would compromise the level of customer service his customers expect.

While the number of layoffs increases, the amount of available jobs decreases. Fewer stores will open, and existing businesses will have to find creative ways to cover the cost of maintaining their current workforce. "When you raise the minimum wage a lot of employers at these entry levels don't do as much hiring, so simply just mandating something from Washington again to the private sector doesn't solve our problem," U.S. Senator Dan Coats said. Pennsylvania Chamber of Business and Industry Spokeswoman Lesley Smith agrees, "A minimum wage increase would fall hard on small businesses that continue to struggle in this economy and that still face uncertainty about what it is going to cost to operate their business moving forward." Even large companies are concerned about the pending proposal and are reacting to the wage hike already. The CEO of J.C. Penney, Ron Johnson, announced that he plans to eliminate traditional checkout methods in an attempt to decrease the cost of labor.

As minimum wage increases, retailers will need to cover the increases in labor costs with price increases. "It would be offset with some slightly higher pricing to pay for it," Gorland said. “Whether it be at a grocery store or a pharmacy. If retailers need to tweak their pricing to reflect the higher cost, that would affect the consumers." Consumers will be the ones stuck paying at least part of the bill for raising the minimum.

John Holub, president of the New Jersey Retail Merchants Association, told NJ Biz that raising the pay of the lowest-wage workers will have a ripple effect, putting pressure on employers to raise pay for workers higher on the pay scale. Smith explains, "Businesses understand that in order to attract quality workers, they need to offer competitive wages. The problem with government mandated wages is that they do not consider whether a business can afford to pay that wage.” For some businesses that may not be possible and people working just above the current minimum wage in companies already spread thin by the economy most likely won’t see raises.

Teacher Jevon Ford warns of employee layoffs and higher costs for consumers if the rate is hiked. Ford argues, “Historically speaking, the minimum wage was not created to be a basis for middle class living, but to make sure that minorities, women and young workers were being paid a fair wage.” Smith surmises her fear that “less-skilled workers, some of the very people supporters of mandated wages say they want to help, would be harmed the most."

Image courtesy of BlackChip Solutions

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Wow! This is really a great discussion. Congress still hasn't made a decision about what to do with the minimum wage, but thanks Heather for giving us some things to think about.

Roy J
•
Mar 7, 2013

i believe the adage that a rising tide raises all boats, the extra $ earned by these low income wage earners will be quickly put back into the economy and will benefit the economy, hence creating, not eliminating jobs, not to mention that the lower paid workers loyalty and productivity will increase, as per studies already done on this subject

rohan g
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Mar 7, 2013

I think that unless we're all willing to adjust our standard of living and tighten our belts, which I know realistically will never happen. We will all benefit yet be hurt at the same time be the proposed increase in wages. The wealthy will always be able to pad and insulate themselves somehow and won't be affected. The working class will see a rise in their cost of living.

Georgina G
•
Mar 6, 2013

I really believe that raising the minimum wage is just going to hurt the economy! Once that is rasied everything else goes up so we are all going into a circle and not getting anywhere. They need to keep cutting prices on gas! and cut their own wages to really make an impact on our economy. Our president shouldnt take all this "vacations" and deal with what this country really needs a good leader!

B W
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Mar 6, 2013

I think that the increase would benifit alot of people, me included. It would also be beneficial if they could lower the cost of living and create alot more jobs for people without requiring so much experience, offer more on the job training. All of these cahnges would make everything run smoother and more efficiant if you ask me.

Heather Fairchild
•
Mar 6, 2013

I can't afford my bills each month but I still think raising the minimum wage is not the correct course. It doesn't have anything to do with who the president is, it's about how the economy works. This will put more people on public assistance instead of helping them out of it.

Shineka T
•
Mar 5, 2013

I believe that the increase would help a whole lot. Think about it. It will help get people off of government programs. The cost of everything is going up. Just about every week anyway. Also I'm so sick of everyone talking about Obama did this and Obama did that. A lot of things were screwed up before Obama even got in the white house. Nobody said anything about that. Give the man a break. Half of these jobs need to pay their employees more money anyway. A lot of people can barely afford to pay their bills every month. The ones that can are this main ones saying this is not good. We wonder why. They don't have anything to worry about. They got it like that. Poor people better wake up and start looking out for each other. Nobody else will.

Lisa S
•
Mar 5, 2013

$9.00 an hour is nothing. It doesn't matter. No one can live in this country on that. I'm unemploymed.Need to find something paying AT LEAST $15.00 an hr. just to pay bills and I don't have med ins.

Fox G
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Mar 5, 2013

IT NEEDS TO BE RAISED SOONER!

Heather Fairchild
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Mar 5, 2013

I still think finding a way to lower gas and food prices will help more people quicker than just raising the minimum wage.

Christene M
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Mar 4, 2013

Raising the minimum wage will be great for the employee, but will hurt small business in a grand way. There will be layoffs, more part time jobs instead of full time, and more work for the existing employees because there will be less hiring and still the same amount of work to be done. This will probably build animosity, less loyalty and employees will probably be less satisfied with their jobs, but have no where to go to find anything different. This definitely hurts the senior age group too, as many can only get jobs in retail where they can get hired when they cannot find jobs other places due to their age, experience and seniority. the less people working, the less taxes will be paid into the government. This plan makes no sense at all.

Laura W
•
Mar 4, 2013

Here's something else to think about, too: Who among our youth will want to further their education and shoot for their dreams, something better, for themselves and their families, if those with no education and no dreams are going to make almost as much as them? Where will new industry, trends, and faces come from then? What about those who've already paid for their education, who will feel the effects of the sequester as they watch the undereducated make almost as much as they do, and then wonder why? Raising minimum wage is "not" a good idea; there are many disastrous effects.

Johnnie L. F
•
Mar 4, 2013

I understand from both sides. As an unemployed worker, the raise would greatly help me but the other side is that it would raise the regular employees pay even higher which the employer may not be able to pay. I understand both sides.

Sam B
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Mar 4, 2013

In the consumers stand point, I believe low income earner can at least have some buying powers instead of buying cheap. It will not put a dent in business orient.

Yes it has been a long time, it sounds nice the raise to nine dollars,but the econmony with un employed workers, who it is going to hurt.With high food and gas prices, lack of good jobs,and our jobs are going to foreign countries like China.When OBAMA, came into the white house the price of gas was a 1.56 per gallon.And his party had both sides of the house.the health care plan you put into effect, was used in Mass. by the late Senator Kenndy, it did not work.Now you have put a curse on the American people and the economy, no other president would of done it..,

Tim D
•
Mar 4, 2013

I fear that an increase of this magnitude will put the lesser skilled workers out of a job or prevent business from hiring them. There will less hiring of individuals with disabilities and put even more pressure on workers to do even more with less hours worked.

Peggy O
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Mar 4, 2013

if min wages go up to $9.oo a hr senior citizen'scould not afford to eat out!!!the cost of meals wouldgo up so high.

Sherrie G
•
Mar 4, 2013

I think we do need an increases, but we don't want to lay people off at the same time. Maybe on not so high, to 8.50?

Judy N
•
Mar 4, 2013

When you allow payroll taxes to increase to solve your problems you reduce net income. Especially for hourly workers already suffering from dramatic gasoline increases just to get to work. They are more than likely already looking for higher paying jobs. No matter how you appreciate & know your workers they still have little or no benefits. We could easily end up public assistance programs to help hourly wage earners survive. The lowest paid workers in America did not cause the debt crisis or the financial crisis. The thinking seems to be if we can keep reducing their net income then we can solve the problems created by those in the highest income brackets. Retail managers have always known that the minimum wage earner is not the answer. Being smart enough & innovative enough to increase sales and profits with quality products responsive to consumer demand & excellent service has always been the answer.

Shannon M
•
Mar 4, 2013

I do not agree with raising the wage. My husband and I support our family of 5 plus our animal family on less than $250 a week. I just recently got a job at a small restaurant where the owner does the cooking and I am the only waitress. I see what she has to do just to keep it going by working another job. I know people want to live better and be able to afford to do more, myself included. But realistically you have got to look at the long term residual affects that it would have on all aspects of our nation. Increasing the wage will increase the cost of everything else, and we will be back to needing a higher wage again.... Think about it.

michelle F
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Mar 4, 2013

An increase would be helpful to lower income family but even in that prizes due to inflation goes up therefore we as a nation would still be on the bottom President Obama I commend him on effort but less be really the BIBLE let us know that GOD will be with the poor alway but the rich the BIBLE state it will be hard for a rich man to enter into kingdom of heaven just as like sticking a needle through a camel eye with that said when top dollar people decided to give themselves a raises it no problem and they are already making good money to take care of there family an other if chose but GOD will deal with it all in his time

Caryn K
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Mar 4, 2013

The drastic pay increase is too much too soon. The increase is necessary, but should be gradually implemented. Business owners need to work smarter and cut waste. They need to ensure the workers thay have on staff are paid according to their work performance and not a rewarded with pay increases for excellent work.

John M
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Mar 3, 2013

The goverment needs to stay out of businesses and down size.

Kevin J
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Mar 3, 2013

Minimum wage should be fifteen dollars. Employers always bleat when it comes to wage increases. All workers in this the worlds wealthiest nation deserve the dignity of being paid a living wage and not to be treated like serfs enslaved to feudal barons.

tammyf
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Mar 3, 2013

I think it's great to increase the minimum wage,I think all the "Ron Johnsons" of the CEO world are just worried about a lesser profit for themselves.iam sure they don't worrie about trying to feed there familys at the end of the week with there pay check...odds are there trying to make sure they can keep there Bentley!! I can bet the MR Johnsons of the CEO world do not worrie about missing a meal! But worrie about missing a family vacition!